nep-ind New Economics Papers
on Industrial Organization
Issue of 2014‒03‒30
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Signaling Quality with Initially Reduced Royalty Rates By Heiko Karle; Christian Staat
  2. Price Cutting and Business Stealing in Imperfect Cartels By B. Douglas Bernheim; Erik Madsen
  3. On the effects of mergers on equilibrium outcomes in a common property renewable asset oligopoly By BENCHEKROUN, Hassan; GAUDET, Gérard
  4. Advertising and concentration in the brewing industry By Erik Strøjer Madsen; Yanqing Wu
  5. A supervised market mechanism for efficient airport slot allocation By Alessandro Avenali; Tiziana D'Alfonso; Claudio Leporelli; Giorgio Matteucci; Alberto Nastasi; Pierfrancesco Reverberi
  6. Multiproduct airport competition and e-commerce strategies By Valentina Bracaglia; Tiziana D'Alfonso; Alberto Nastasi
  7. Network externalities between carriers or machines:How they work in the smartphone industry By Ryoma Kitamura
  8. Defining Hospital Markets – An Application to the German Hospital Sector By Corinna Hentschker; Andreas Schmid; Roman Mennicken

  1. By: Heiko Karle; Christian Staat
    Keywords: informed principal; moral hazard; signaling; franchising; reduced royalty rates
    JEL: D23 D82 D86
    Date: 2013–12
  2. By: B. Douglas Bernheim; Erik Madsen
    Abstract: Though economists have made substantial progress toward formulating theories of collusion in industrial cartels that account for a variety of fact patterns, important puzzles remain. Standard models of repeated interaction formalize the observation that cartels keep participants in line through the threat of punishment, but they fail to explain two important factual observations: first, apparently deliberate cheating actually occurs; second, it frequently goes unpunished even when it is detected. We propose a theory of "equilibrium price cutting and business stealing" in cartels to bridge this gap between theory and observation.
    JEL: D43 L41
    Date: 2014–03
  3. By: BENCHEKROUN, Hassan; GAUDET, Gérard
    Abstract: This paper examines a dynamic game of exploitation of a common pool of some renewable asset by agents that sell the result of their exploitation on an oligopolistic market. A Markov Perfect Nash Equilibrium of the game is used to analyze the effects of a merger of a subset of the agents. We study the impact of the merger on the equilibrium production strategies, on the steady states, and on the profitability of the merger for its members. We show that there exists an interval of the asset's stock such that any merger is profitable if the stock at the time the merger is formed falls within that interval. That includes mergers that are known to be unprofitable in the corresponding static equilibrium framework.
    Keywords: Mergers; dynamic games; oligopoly; common property; renewable resources
    JEL: C73 D43 L13 Q20
    Date: 2013
  4. By: Erik Strøjer Madsen (Department of Economics and Business, Aarhus University, Denmark); Yanqing Wu (Department of Economics and Business, Aarhus University, Denmark)
    Abstract: The opening of the markets in East Asia and Eastern Europe in the 1990s changed the structure of the beer markets and in the following years a large wave of mergers and acquisitions took place. The paper tracks the development in industry concentrations from 2002 to 2012, discusses some of the main drivers behind this development and points to economies of scale in advertising as a main pay-off from mergers and acquisitions. Using firm-level data both from the American market and the world market, the estimations verify significant economies of scale in marketing and distribution costs. Based on information from the Annual Reports of the eight largest breweries, the estimation proved a reduction in these costs of ten percent when doubling the size of the brewing groups.
    Keywords: Advertising, mergers and acquisitions, brewing industry
    JEL: L11 L66 M37
    Date: 2014–03–20
  5. By: Alessandro Avenali (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza"); Tiziana D'Alfonso (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza"); Claudio Leporelli (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza"); Giorgio Matteucci (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza"); Alberto Nastasi (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza"); Pierfrancesco Reverberi (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza")
    Abstract: We provide a general procedure to deal with the airport slot allocation problem, which applies the principles underlying the Administered Incentive Pricing model for regulation of radio spectrum in electronic communications markets. In particular, we propose an incentive pricing mechanism that generates an efficient slot allocation, where prices are built on a measure of the best use of each slot in serving end users. Incentive prices are set by considering the structure of the air transport network (and thus interdependencies among slots at different airports) in a given region, and the effect on both quantity and quality of passenger air transport in the region. Therefore, incentive prices should better align private and social decisions over the use of slots compared with pure market mechanisms (auctions and trading).
    Keywords: Airport slot allocation; Congestion; Administered incentive pricing; Market mechanisms
    Date: 2014
  6. By: Valentina Bracaglia (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza"); Tiziana D'Alfonso (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza"); Alberto Nastasi (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza")
    Abstract: We study airport competition when vertically differentiated products may be strategically offered at the time of ticket purchase through the Internet: a base product Ð the flight Ð and a composite one Ð the flight plus some premium commercials (PCs), as car parking, car rental or hotel reservation. We model a two stages game: first airports decide whether to offer PCs online, thus making the purchasing decisions interact through observability of aviation and commercial prices. Then, they engage in Bertrand competition deciding on both prices. We find that airports set lower aviation charge than they would have levied absent concessions, when they are both competing on online offers. Nevertheless, when only one airport pursues the online offer, that facility sets a higher aviation charge than it would have levied absent concessions, as long as profits from retail earned at the facility on the travel day are not high enough. This suggests that the combined effect between airports competition on side business and demand complementarity does moderate airports market power in the core business. The Nash equilibrium of the game is such that both airports offer PCs on line, making travelers account for the surplus they would gain from both the sides of the business when they buy air tickets. This is welfare enhancing. Nevertheless, when profits from retail earned at the airports on the travel day are sufficiently high, the facilities are caught in a PrisonerÕs Dilemma.
    Keywords: Airports competition; e-commerce; concessions; vertical differentiation
    Date: 2014
  7. By: Ryoma Kitamura (Graduate School of Economics, Kwansei Gakuin University)
    Abstract: In this paper, we consider a duopoly model where two firms sell two differentiated products and there is a network externality between either carriers or machines. We derive the equilibria of these games and illustrate the effects of a change in quality on the equilibrium quantity of each good. Furthermore, we compare fully compatible and incompatible equilibrium outcomes and discover some insights on relations between them. Such insights were not found in earlier studies that considered only the network externality between carriers.
    Keywords: Smartphone market, Multi-product firm, Duopoly, Cannibalization, Network externality
    JEL: D21 D43 L13 L15
    Date: 2014–03
  8. By: Corinna Hentschker; Andreas Schmid; Roman Mennicken
    Abstract: The correct definition of the product market and of the geographic market is a prerequisite for assessing market structures in antitrust cases. For hospital markets, both dimensions are controversially discussed in the literature. Using data for the German hospital market we aim at elaborating the need for differentiating the product market and at investigating the effects of different thresholds for the delineation of the geographic market based on patient flows. Thereby we contribute to the scarce empirical evidence on the structure of the German hospital market. We find that the German hospital sector is highly concentrated, confirming the results of a singular prior study. Furthermore, using a very general product market definition such as “acute in-patient care” averages out severe discrepancies that become visible when concentration is considered on the level of individual diagnoses. In contrast, varying thresholds for the definition of the geographic market has only impact on the level of concentration, while the correlation remains high. Our results underline the need for more empirical research concerning the definition of the product market for hospital services.
    Keywords: Hospital market; concentration; product market; geographic market; Germany
    JEL: L11 I11
    Date: 2014–02

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